“Most economists predict a recession in 2023”: I own a rental property. Is it a good time to take out a bank loan and renew or should I wait?

Dear MarketWatch,

I, along with a brother, own a 40+ room rental property in the Caribbean where we rent by the week.

It is close to the center but is in need of repairs and renovations.

Is it a good time to go to the bank for a renovation loan? We are also open to changing our business model.

Please advise and thank you.


Ready to make a move

The big moveis a MarketWatch column that examines the ins and outs of real estate, from finding a new home to applying for a mortgage.

Have a question about buying or selling a home? Want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.

Dear Ready,

Great job maintaining and managing this 40 room short term rental. With the worst days of COVID behind us – I hope – travel is booming and people are going crazy exploring all parts of this planet. Then proceed only if there is a request for reservations.

I don’t know what lenders are offering where you are, so take a couple of weeks to contact a group of lenders to see what rate they are offering and if that interest rate is trending down or up.

There was a truce in the United States. The average 30-year fixed mortgage rate fell to 6.67% last week from 6.9%, according to the latest data from the Mortgage Bankers Association. But that’s about double the rate for the same period last year.

Obviously, the faster you repair this property and beautify it, the sooner you will increase its value. And you can probably increase the daily rate you charge. But I advise you to proceed with caution, and only if your rent projections make sense.

There are other considerations: You may need to keep some rooms off the list when they get a makeover, but at the end of the day, you should see more money once it’s done. Subject your financial plan to a rigorous risk assessment and take into account all eventualities: existing demand, an expected increase in demand after renovations, and a decrease in demand due to a possible recession.

You will need to have sufficient financial backing to pass all three outcomes. With the help of an accountant and/or financial advisor, ensure you have cash flow and rental projections, including the assumed post-renovation rent increase, to survive the next 12 months, particularly if market slowdown.

As inflation is slowly coming under control, according to the Nov. 10 federal government report, the way the 10-year Treasury is sagging and mortgage rates are falling again, you may be getting closer to an open window of opportunity in the near deadline.

“Reducing mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year,” said Joel Kan, vice president earlier. and deputy chief economist of the Mortgage Bankers Association. this week.

“As a result of falling mortgage rates, purchase and refinance applications increased slightly last week,” he added. “However, refinancing activity is still more than 80% below last year’s pace.”

Another option: Do the renovations during the off-season, when foot traffic is likely to be less. Guests obviously won’t appreciate the hammering and drilling and you don’t want to end up with a flood of negative Airbnb ABNB reviews,
or Yelp.

You also said that you are willing to change your business model. If you’ve got an appetite, consider converting some rooms into long-term rentals. If you get a good mix of short- and long-term renters, you’ll have a more secure cash flow balance.

You seem to have done an amazing job weathering the two years of COVID where you’ve probably seen bookings plummet.

Now that the industry is in recovery mode, it’s an opportune time to make sure you’re getting the most out of your property. But again make sure you can afford it, especially if business slows down and factor in any delays due to labor and/or material shortages. Ask your builder for references from recent clients, so you can get more details on what challenges they faced.

Most economists predict a recession in 2023. As with everything in business, there are no guarantees.

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